The Three B’s of Business: Building Success Brick by Brick

Blog 3Bs

In the small business world, mastering the basics and fundamentals of running a business can make the difference between business failure and success.

UK business prospect of surviving five years falls in ten years

Data from the ONS shows that the five-year survival rate for a business born in 2016 in the UK was a shocking 38.4%. In 2013 the same survival rate was 41.7% meaning that the prospects of a business surviving over five years has declined in the last ten years.

That’s not the full story though. As the graph below shows the failure rate is different over the five years and not linear.

Graph

Of the 62 businesses out of every 100 that fail over five years 41 will fail in years two and three after opening. We believe this is because in year one business owners are energetic and full of optimism about their new venture. They are likely good technicians and have a good following of family and friends supporting them together with some cash funds to get them through.

Reality hits in year two and three as suddenly they need to become both a manager and entrepreneur. For a lot of business owners these extra skills and demands are not naturally present, and that enthusiasm and cash quickly evaporates resulting in the high failure rates in those years.

Business owners are not equipped with the skills, knowledge and experience to navigate through this initial growth phase and the business soon closes.

Our business advisors work with clients every day to help them stand up to these challenges, to become more resilient and capable of surviving whatever is thrown at them.

We talk to clients about three pillars that provide the foundation upon which a thriving and resultant businesses can be built; Business Planning, Bookkeeping and Budgeting. Creating good habits about these three pillars will establish good defences which will help protect your business by making it more resilient.

Business planning: The blueprint for success

Business Planning Matters, it’s your business sat nav. Imagine setting out on a cross-country road trip without a map or GPS. Business without a well-structured plan is no different. Business planning provides direction, focus, and a roadmap to achieve your goals.

Here’s why business planning is crucial:

  • Define your business’s long-term vision, your why, and objectives.
  • Allocate resources effectively, whether it’s finances, manpower, or time.
  • Identify potential challenges and risks and develop plans to overcome them.
  • Establish measures to track your business’s performance over time.

Business planning isn’t a one-time event but an ongoing process that adapts to the changing world around you. With a solid plan in place, you’ll be better equipped to navigate the challenges and opportunities that arise.

Bookkeeping: The cornerstone of financial clarity

In today’s digital age, “cloud accounting” has revolutionised the way businesses manage their finances. Gone are the days of cumbersome spreadsheets and stacks of paper receipts. Cloud accounting apps such as Xero, Chaser, Dext, Soldo and Approval Max offer real-time access to financial data from anywhere, allowing business owners to make informed decisions promptly.

Some key benefits of cloud accounting include:

  • Accessibility: Access your financial data anytime, anywhere, and from any device with an internet connection.
  • Collaboration: Collaborate seamlessly with your accountant or team members, enhancing transparency and efficiency.
  • Automation: Streamline repetitive tasks such as data entry and reconciliation, saving time and reducing errors.
  • Data Security: Enjoy robust data security measures, ensuring your financial information is safe and protected.

By harnessing the “power up” cloud accounting provides business owners can gain invaluable insights into their financial health which in turns enables them to make decisions with confidence.

A robust financial bookkeeping system is only part of the story. Whilst much can be automated there is still some work to do and good financial habits are needed to ensure the data is kept up to date and accurate. Some people create little weekly checklists of tasks that they then work through at the same time each week.

Budgeting & Forecasting, building financial resilience

The Power of Budgeting and Forecasting is that together they stand as the pillars of financial resilience and strategic planning. These tools not only keep your business on track but also prepare it to navigate future challenges and seize opportunities.

Budgeting, a blueprint for financial control

Budgeting is the process of creating a detailed financial plan that outlines your expected income and expenses over a specific period. It’s akin to drawing a map that guides your financial journey. Here’s why having a budget is  essential for any business, large or small:-

  1. Expense Management: By meticulously listing your expected expenses, you gain control over your financial outflows. This helps identify areas where cost-cutting is possible.
  2. Income Projection: A budget provides a clear estimate of your expected income, enabling you to set revenue targets and measure your performance against them. Through a bottom up process you can identify exactly what your key drivers of revenues are.
  3. Emergency Preparedness: Budgets serve as a safety net. They reveal whether your business has enough reserves to weather unexpected changes or disruptions.

Forecasting: anticipating the financial future

While budgets focus on the present and near future, forecasting extends your financial vision further into the future. I like to call this scenario planning.

A forecast will utilise historical data and market trends to predict your business’s financial performance. Here’s why it’s vital:

  1. Strategic Decision-Making: Forecasts help you anticipate revenue fluctuations, market shifts, and industry trends. Armed with this knowledge, you can make strategic decisions, such as expanding your product line or entering new markets.
  2. Resource Allocation: Accurate forecasts help you allocate your businesses resources more efficiently. You’ll know when it’s time to invest in equipment, hire additional staff, or scale back to maintain profitability.
  3. Risk Mitigation: By identifying potential financial pitfalls in advance, forecasting allows you to develop contingency plans. This proactive approach minimises the impact of adverse events.

Five tips for creating an effective budget

  1. Start with Historical Data: Begin your budgeting process by analysing past financial performance. This historical data provides a solid foundation for projecting future income and expenses.
  2. Be Realistic: While optimism is admirable, your budget must be grounded in reality. Overestimating income or underestimating expenses can lead to inaccurate projections. Use conservative estimates to avoid disappointment.
  3. Include Contingency Funds: Unforeseen expenses are a part of business life. Allocate a portion of your budget to a contingency fund to cover unexpected costs without derailing your financial plan.
  4. Regularly Review and Adjust: A budget isn’t set in stone. Regularly review your budget, compare it to actual financial results, and make adjustments as needed. This flexibility ensures your budget remains relevant and effective.
  5. Involve others: If you have a team or partners, involve them in the budgeting process. Their input can provide valuable insights and foster a sense of shared responsibility for financial goals.

In conclusion, budgeting and forecasting are not just financial tasks but strategic tools that empower your business to thrive and adapt in a changing world. When implemented thoughtfully and with these tips in mind, they become indispensable tools in your journey toward long-term financial health.

The “Three B’s of Business”

The “Three B’s of Business” – Bookkeeping, Business Planning, and Budgeting & Forecasting – are not merely administrative tasks; they are the keys to unlocking your business’s full potential.

By embracing cloud accounting, creating a solid business plan, and mastering budgeting and forecasting, you’ll be well on your way to building a successful and sustainable business.

Remember, these are not isolated concepts but interconnected strategies that work together to support your entrepreneurial journey. With dedication and a commitment to these fundamentals, you can construct a thriving business, one brick at a time.

If you’d like to meet for a coffee and discuss business planning, bookkeeping or budgeting for your business, get in touch.

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